Rare Securitization Of Commodity Inventories In The Works

Baar, Switzerland-based Glencore International, one of the world's largest natural resources companies and
commodity traders, is preparing a rare securitization of its commodity inventories through a single-seller commercial paper conduit, according to
Seth Vance, managing director, head of financial institution securitization and European collateralized debt obligations at
Deutsche Bank in London. The $750 million deal, scheduled to be launched next month, is being structured and lead managed by
Deutsche Bank's London-based securitization team.

The deal will securitize inventories of lead, nickel, zinc, copper and aluminium. Glencore and Deutsche Bank opted for a CP deal
instead of a term deal, because it provided for more funding flexibility. Glencore can be long on commodity inventories or very short, and wanted
to fund to match that dynamic, meaning the company did not want to have to pay a coupon to investors when it did not have any inventory, explains
Vance. It is the sale of the commodities to the conduit that generates cash to pay cp holders, while Glencore keeps the profits.

One of the challenges in structuring the deal was getting rating agencies/liquidity providers/investors comfortable with the
volatility inherent to commodities as an asset class, says Vance. "This is a creative application of securitization technology in another
growing area within the business," says Vance. In future, he foresees more deals of this kind as the structure could be used to securitize
other non-traditional assets such as forests and oil and gas reserves, for example.

Only a few securitizations of commodity inventories have been executed. One was a E100 million term securitization of diamonds for
Rosy Blue a Belgium-based diamond wholesaler. Another was a securitization of wool inventories.